WASHINGTON (Reuters) – The European Central Bank needs to keep raising interest rates even if most of its past hikes have yet to feed through to the economy, as rapid price growth was at risk of getting entrenched, German central bank chief Joachim Nagel said on Friday.
The ECB has raised rates by at least 50 basis points at each of its past six meetings but policymakers are now debating whether to slow down given financial vulnerabilities.
“I do not think that our job is already – or even mostly – done,” Nagel, an influential voice on the ECB’s rate-setting Governing Council said in a speech. “Rather, in my opinion, further interest rate hikes will be required.”
Markets are now split between bets for a 25 and a 50 basis point move on May 4 and see about 85 basis points of hikes before the deposit rate peaks by September.
“Risks to price stability are currently tilted to the upside,” Nagel said. “It is not a given that we will return to price stability over the medium term.”
Nagel called for more policy tightening even as he acknowledged that the vast majority of the 350 basis points of moves since July have yet to feed through to prices.
He said that the ECB looked at how key variables reflected policy tightening and concluded about a month ago that pass-through to GDP was around 30% while to inflation roughly 20%.
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